Social Security

Trump’s Tax Plan Not Grounded in Reality

https://reclaimourrepublic.files.wordpress.com/2015/07/donald-trump-thumbs-up.jpg?w=640&h=480

Donald Trump, the brash, politically incorrect, self-promoting billionaire businessman turned politician has, in defiance of all political wisdom, rocketed to the top of the polls by tapping into the frustration and anger of the conservative base, which feels betrayed by GOP leadership’s absolute refusal to fight Obama’s lawless actions.

However, he has increasingly received criticism for his bumper-sticker sloganeering brand of campaigning, which has been long on chest-thumping but short on specifics. In response, Trump released recently his income tax reform plan.

From a broad-strokes perspective, there is much to like about Trump’s plan; the elimination of the marriage penalty and the AMT (Alternative Minimum Tax), the elimination of loopholes and deductions, the elimination of the death tax, a reduction in the number of tax brackets and a lowering of the rates (four brackets of 0%, 10%, 20%, and 25%), and a steep reduction in the corporate income tax rate to 15% (a great way to encourage investment in U.S. companies, which now bear the burden of the highest corporate tax rate in the world).

Trump’s plan would also require American multi-nationals to repatriate their offshore capital, encouraged by a 10% repatriation tax rate.

However, as with everything in life, the devil is in the details.

Report: Long-term budget issues present fiscal threat to U.S.

National Debt

TL;DR version: This is a pretty long post dealing with a subject that generally fascinates only those interested in fiscal policy. The short of what you need to know is that the CBO expects the economy to perform better in the short-term, with higher revenues and lower budget deficits. But the rising costs of entitlements and the cost of servicing the national debt will drive up spending substantially over the long-term with the public’s share of the national debt becoming equal to the size of the economy (or GDP). As if the baseline scenario isn’t concerning enough, the alternative fiscal scenario is even more of a disaster. All charts below come directly from the CBO’s report.

Forget Syria or the still ongoing war on terrorism. The real security threat is the national debt. That’s what Admiral Mike Mullen warned in 2010. Those words still ring true today, especially after reading the latest long-term budget projections released yesterday by the Congressional Budget Office (CBO).

The annual report presents the federal budget outlook for the next 10 years (2013-2023) as well as provides a look into long-term projections relative to both current law and alternative scenarios, the latter of which most economists believe present a more realistic view of the United States’ fiscal health.

CBO Director Doug Elmendorf told reporters yesterday that the “federal budget is on a course that cannot be sustained indefinitely.”

America, Land of the Free (but get permission first)

“It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be tomorrow.” — James Madison, Federalist No. 62 (1788)

Having celebrated the 237th anniversary of the signing of the Declaration of Independence this past Thursday, I was once again reminded of what a great country we live in; the “Land of the Free” where man is free to pursue happiness as he determines that to be, where you be anything you want to be and do what you want to do…anything at all!

Unless…

You want to choose your own health care plan, one that meets your needs and doesn’t force you to pay for coverage that you don’t need, that doesn’t make you pay for alcoholism coverage even if you don’t drink, coverage for smoking-related illnesses even if you’ve never smoked, pre-natal and maternity coverage even if you are a single man or a great-grandmother whose child-bearing years ended sometime around the Carter administration (sorry, you can’t do that).

Why The Sequester Is Important

United States Capitol

On March 1st, the so-called sequester which is a series of automatic spending “cuts” that were agreed to in 2011 are supposed to take effect. The “cuts” are supposed to be around $1.2 trillion over 10 years spread equally among defense and non-defense spending. Democrats are complaining how women, children, and old people will be (insert one or more of the following here) starved, made homeless, and/or impoverished by the “cuts” in social welfare programs. Republican defense hawks are claiming that sequester will destroy the US military. Both groups also claim the sequester will put the economy back into recession and/or maybe even a depression. Indeed, both groups say that the sequester should be avoided at all costs and that we should “raise revenues” which is Washington speak for raising taxes to cover the amount that was supposed to be “cut”. However, if we are ever going to get our nation’s fiscal house in order, we have to allow the sequester to take effect.

Why I Hate The Sequester

Although I do believe that the sequester must be allowed to take effect, I don’t like it. For starters, $1.2 trillion in “cuts” (which are not actual budget cuts but instead are merely reductions in the rate of spending growth) is a very small amount when you look at how grave the nation’s financial condition is.

Secondly, the sequester does nothing to address entitlement programs like Social Security and Medicare which are the two long-term drivers of future financial problems.

Third, the Democrats do have a point when they say the cuts fall disproportionately on non-defense spending. The Department of Defense is the largest single item of discretionary spending and all other agencies combined do not equal it. But the DoD is only taking 50% of the cuts.

Barack Obama: Don’t worry about the national debt

Barack Obama with David Letterman

Back during the 2008 campaign, then-candidate Barack Obama told Americans on more than one occasion that they would see a net-spending cut during his first-term in office. But nearly four years, that promise hasn’t come to fruition. In fact, the national debt has grown by more than $5 trillion as spending was increased, as is taught in the Keynesian school, to “prime the pump” of the economy. Obama once said such out of control spending was “unpatriotic.” My, how things have changed.

During an interview on The Late Show on Tuesday night, President Obama told David Letterman that the national debt really isn’t a big deal:

President Obama said that the U.S. does not have to “worry” about its $16 trillion debt in the “short term.” He also could not “remember” what the nation’s total debt figures were when he entered office.

“I don’t know remember what the number was precisely,” Obama told talk show host David Letterman during an interview.

Letterman asked him if Americans should be “scared” of the trillions of dollars it owes to other countries.

“A lot of it we owe to ourselves. Because if you invest in a treasury bill or something like that then essentially you’re loaning the government money. In fact, the majority of it is held by folks who live here, but we don’t have to worry about it short term,” Obama responded.

MediScare, Part “O”, The Entitlement Bomb

Paul Ryan

Early during his second term, President George W. Bush declared he would spend his accumulated political capital on reforming Social Security. Democrats immediately lambasted the president, falsely claiming that his reform ideas were “radical” and would leave the elderly penniless and laying in the streets. They claimed Bush would gamble the life savings of our parents and grandparents on the stock market, and that his Wall Street buddies would grow rich while swindling granny out of everything she owned.

Of course, the truth was nowhere close. Bush’s “Strengthening Social Security for the 21st Century” plan was actually quite timid. It made no changes, zero, in the Social Security program for those 55 and over. Under Bush’s plan, personal retirement accounts would be phased in, with annual contribution limits gradually increased to a staggering…4%…yes 4%…of workers’ payroll taxes allocated to their personal accounts, with annual contributions initially capped at $1,000 per year in 2009, rising over time by $100 annually, plus growth in average wages. In other words, a measly 4% of payroll taxes would have been invested in private accounts, with the other 96% staying in the Social Security Trust Fund.

And yet due to this “radical” plan, this blindingly fast weaning of Americans from the government teat, Democrats successfully terrified Americas seniors and Bush’s political capital was eviscerated. He would end up abandoning the effort and Republicans would crawl back into their shells, unwilling to again touch this third rail of American politics.

CBO: Deficit to exceed $1 trillion in 2012

On the campaign trail and during the third presidential debate with Sen. John McCain (R-AZ) in 2008, then-candidate Barack Obama promised that Americans would see a “net-spending cut” during his presidency.

The claim was met with a boatload of skepticism given that Obama was proposing massive expansions in healthcare and non-defense discretionary spending; however, we all crossed our fingers that he would follow through, but we didn’t hold our breath.

The skepticism proved to be justified. Just a couple of months after coming into office, President Barack Obama told Americans that under his budget that there would be trillion dollar deficits as far as the eye can see.

He wasn’t kidding. The Congressional Budget Office released its budget report for this current fiscal year yesterday, predicting yet another trillion dollar budget deficit and unemployment hovering around 9%:

The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.

The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.
[…]
If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

McClintock: Squaring Social Security and the Payroll Tax Cut

As Congress debates the extension of the payroll tax cut, a measure that the White House said would stimulate the economy and create jobs, I offered my own thoughts on alternatives that would encourage economic growth and protect Social Security.

Topping the list of unfinished business this year is the impending collision of two closely related crises: the expiration of the payroll tax cut and the acceleration of Social Security’s bankruptcy.

Last year, Congress voted for a payroll tax cut that averages roughly $1,000 for every working family in America.

As warned, it failed to stimulate economic growth and it accelerated the collapse of the Social Security system. But as promised, it threw every working family a vital lifeline in tough economic times.

We need to meet three conflicting objectives: we need to continue the payroll tax cut; we need to stimulate real economic growth and we need to avoid doing further damage to the Social Security system.

But first, we need to understand that not all tax cuts stimulate lasting economic growth. Cutting marginal tax rates does so because this changes the incentives that individuals respond to. Cutting infra-marginal tax rates - such as the payroll tax - does not.

GOP Presidential Power Rankings

It’s been an interesting last couple of weeks in the race for the Republican nomination for president as this race has seen the two frontrunners go after each other on economic records and other issues, including a debate over Social Security. While Romney has cast himself as a conservative, he has been running to the left of Perry on entitlements, chastizing Perry for his past comments on the issue.

As far as the rankings go, I’ve moved Herman Cain up a spot over Newt Gingrich, but he’s still below Bachmann. But I expect a shake up as soon as next week as fresh polls come out in the race.

The News

Guess who else thinks Social Security is a Ponzi scheme?

The bruhaha over Rick Perry’s comments that Social Security is a Ponzi scheme have taken a backseat to the remembrance of 9/11 and the Redskins’ first win in about 90 years, but let’s fan the flames a bit. Thanks to the erudite Don Boudreaux over at Cafe Hayek, it has come to my attention that a highly visible economist at one of the nation’s largest papers agrees with Gov. Perry’s assertion:

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

And yes, you’ve probably guessed it: it’s Paul Krugman. And yes, you’ve probably guessed it, but the above emphasis is mine.

The essay was written in the December 1996/January 1997 edition of the Boston Review, as a response to Richard Freeman’s suggestions on fixing inequality. I profess to not having read Freeman’s work entirely, though mostly it was more of the same “we need to take the wealth from the top 20% and give it to the bottom 20%” nonsense.


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